6 of the best homes for your money

Category:
Savings
16/03/2018

MONEYFACTS ARCHIVE

This article was correct at the time of publication. It is now over 6 months
old so the content may be out of date.

We're always being told of the importance of saving and building up a valuable nest egg, and this means that finding the best home for your money should be a top priority. So, with that in mind, we've compiled a list of the six best potential homes so you can make your money go further.

Cash ISA. A cash ISA will be the first port of call for a lot of people, and with good reason – these accounts offer returns that are entirely tax-free for life, no matter what happens to the Personal Savings Allowance in the future, and with a lot of variable rate ISAs being easy access you'll be able to get your hands on your money should you need it. Currently the pick of the bunch comes from Al Rayan Bank with its Notice Cash ISA paying an expected profit rate of 1.55% AER, or if you'd rather not give notice to withdraw your money then the best rate comes from Coventry Building Society, with its Easy Access ISA (4) paying 1.10%.

Easy access accounts. Easy access rates may not be particularly high at the moment, but if you don't want to lock away your cash at record low rates, they could be ideal. They're the perfect home for an emergency fund, too, which means everyone should have one! ICICI Bank UK is currently the top player in this respect, with its easy access deal boasting a market-leading 1.15% AER (or if you'd rather go with a more familiar name, NS&I's deal comes with a rate of 1.00%). Alternatively, if you don't mind giving a bit of notice to access your funds, you can secure a top rate of 1.51% AER with Al Rayan Bank in exchange for 120 days' notice.

Fixed rate bond.Fixed rate bonds could be a great alternative to easy access or notice accounts as they generally offer better rates, provided you're willing to lock your money away for a set period. Secure Trust Bank leads the way in this sector with its five-year bond offering a market-leading 2.01%, while Atom Bank is the top pick for a 12-month bond with a rate of 1.40%. Alternatively, if you'd prefer a fixed rate ISA, you can get a market-leading 1.50% with Metro Bank's five-year deal, while Al Rayan Bank is the leader of the 12-month pack with an expected profit rate of 1.35%. (It's worth pointing out that the fixed rate market has taken a particularly large battering of late, with long-term rates no longer paying significantly more than shorter term or even notice versions. However, if you want to beat the prospect of further cuts and secure guaranteed returns, they could still be worth considering.)

Stocks & shares ISA. Although a lot of people prefer the security of saving in cash, stocks & shares ISAs could be a great alternative for those seeking real growth. You get the same tax-efficiency, but are investing in shares rather than keeping your savings in cash – your returns are based on the performance of the stock market rather than a set interest rate, and although there's a risk that those shares won't perform quite as well as you'd hoped (meaning you could end up with less than you put in) there's also the chance that they'll perform much better, offering the potential of higher returns. If you've got the risk appetite, it could be worth considering, particularly in today's low-rate environment (just make sure you're fully aware of the risks involved; read our guide for more details).

Current account. Think a current account is only useful for day-to-day spending? Think again! Right now there are several high interest current accounts that can offer highly impressive returns on your money, often far outweighing those that can be achieved in the savings market, which makes them a viable alternative to traditional savings accounts. For example, TSB and Nationwide both offer accounts with in-credit interest rates of 5%, and although this rate is only available up to a set balance (£2,500 and £2,000 respectively), for those with a smaller savings pot – or those willing to indulge in a bit of active management – you can't go wrong. (As a caveat, TSB's interest rate will reduce to 3% early next year, so make sure you're happy with that. If not, look for alternatives.)

Credit card/debt repayments. OK, it might not technically be a home for your money, but if you've got existing credit card debts or overdrafts then you ALWAYS want to pay these off before putting any disposable cash in a savings account (provided you've got a bit of an emergency fund). Why? Well, you just need to think about how much you're spending in interest compared to how much you're getting from a savings account. Let's say you had £2,000 on a credit card. Even a modest APR rate of 16.90% would see you pay upwards of £300 per year in interest, while if you'd put that £2,000 in the top-paying one-year bond from Al Rayan Bank you'd earn just £27 over the year. When you consider how much you're losing out, doesn't it make sense to use the money you'd save to pay off your debt instead?

As you can see, you've got plenty of options when it comes to finding a suitable home for your cash. Keep up-to-date with the best products on the market by using our best buy charts and comparison tools – after all, you work hard for your money, so why not make it work hard for you, too?